Credit Card Authorization Codes
Learn to Decipher Authorization Codes and Use the Responses to Manage Chargebacks
The moment a cardholder instigates a transaction, the authorization process is set in motion. Authorization approval is necessary to the security and conclusion of the sale.
To receive authorization, processors send an authorization request to the issuing bank of the cardholder. The communication returned from the issuer to the acquirer is known as the authorization message.
The authorization message consists of three distinct parts:
- Authorization Code. The authorization code is a numerical or alphanumeric code provided to a merchant’s processor by a cardholder’s issuing bank. The authorization code can be used in the representment process to verify the authorization process was successfully completed.
- Authorization Response. The authorization response tells the merchant whether or not to accept payment from the customer, and for what reason. For example, if the response is “Authorization Declined,” the merchant is advised to not accept payment nor complete the transaction.
- Address Verification Service Code. Some, but not all authorization messages will also include an AVS code. AVS is a service that compares the cardholder’s address on file at the issuing bank with the address used in the authorization request. AVS is used to protect cardholders from fraudulent activity in card-not-present transactions.
There are a number of responses an authorization request can yield.
|Approved||The cardholder’s account is secure, up-to-date, in good standing, and contains sufficient funds to complete the purchase.||The merchant is advised to process the transaction.|
|Call||An issue has arisen on the cardholder’s account and the issuer is requesting direct communication with the merchant.||It is not advised to proceed with the transaction until approved.|
|Declined||The cardholder’s transaction has been declined for one of the following reasons: the account has been compromised, the card itself was reported lost or stolen, the cardholer is not in good standing with their bank, there has been a security breach, or the account does not contain sufficient funds to support the purchase.||The merchant is advised to cancel the transaction and request an alternative form of payment.|
|Error||A problem has occurred with the equipment or network and the merchant is advised to contact a technician or support provider.||It is not advised to complete the transaction without authorization.|
|Expired Card||The credit card used is no longer active; it has been cancelled or has expired.||The merchant is advised to cancel the transaction and request an alternative form of payment.|
|Hold-Call||The issuing bank is requesting that the card itself not be used for any future payments.||The merchant is advised to contact its authorization representative to address this matter. It is advised to cancel the transaction and request an alternative form of payment.|
|Invalid Account Number||The issuer has noted an inconsistency in the account number on file and the account number provided in the authorization request.||The merchant is advised to verify the account number entered.|
|Pick Up Card||The card has likely been lost or stolen, and it is requested that it be removed from circulation and not used in future payments.||In accordance with the merchant account, merchants are advised to file a Card Pick Up form with their acquiring bank or conduct Code 10 Authorization Requests. It is not advised to complete the transaction.|
|Referral||An issue has arisen on the cardholder’s account and the issuer is requesting direct communication with the merchant.||The merchant is advised to contact is authorization representative to address this matter. It is not advised to proceed with the transaction until approved.|
Receiving an approval tells the merchant that the cardholder has the necessary funds to make the purchase. If the transaction is approved, the exact amount of money is placed on hold. However, funds are not immediately removed at the time of authorization.
When a merchant settles a batch of transactions, the authorized amount of money is then removed from the cardholder’s account and distributed to the merchant’s account, completing the transaction.
Not a Safe Guard from Chargebacks
Authorization approval codes not only affect the sale itself, but can also play a role in a merchant’s battle against chargebacks.
Merchants that deal with chargebacks are aware of how detrimental they can be. Not only do they compromise otherwise profitable sales, but merchants experiencing excessive chargeback levels are at risk of losing their merchant account all together. Requesting authorization approval codes is an added step in preventing fraudulent sales, which result in chargebacks.
Merchants who proceed with transactions without approval from the issuer are at a much greater risk of receiving transaction disputes with specific chargeback reason codes. If a customer claims that the transaction was unauthorized, and the merchant didn’t request an authorization code, a representment will be quite difficult to win. That being said, authorization codes are not a safe guard against chargebacks. A transaction can be authorized by the issuer without being authorized by the cardholder.
The authorization process is a vital component of any credit card transaction. However, it is just one small piece of a very large chargeback prevention puzzle. There are a myriad of strategies a merchant should implement to avoid chargebacks.
For those who aren’t sure where to start, that’s where we come in. DisputeChargebacks helps merchants tackle chargebacks through both defense and offense. By contacting us for a comprehensive risk analysis, we can tell you where you stand in the fight against chargebacks.